SNS Nationalized in Netherlands After Real Estate Losses

The 3.7 billion-euro ($5 billion)
nationalization of SNS Reaal NV (SR), the fourth-largest Dutch bank,
was the only way to protect savers and the banking system, Prime
Minister Mark Rutte said.

“The collapse of SNS would have put both in danger,”
Rutte told reporters in The Hague yesterday. “We needed to
intervene.”

SNS, which acquired ABN Amro Holding NV’s property-finance
unit in 2006, has been hurt by losses on real estate loans that
left it struggling to repay a government bailout before next
year’s deadline and bolster capital. The nationalization affects
issued shares, core Tier 1 capital securities and subordinated
bonds, the finance ministry said.

The move comes less than five years after the Netherlands
bought Fortis’s Dutch banking and insurance units and its stake
in ABN Amro for 16.8 billion euros when the company ran out of
short-term funding and customers withdrew deposits. The
government also provided aid to ING Groep NV (INGA), the biggest Dutch
financial-services company, and Aegon NV (AGN) at the time.

“We carefully looked at all the alternatives,” said
Rutte, 45. “We understand very well that many people don’t like
the idea that again a bank in need needs to be helped.”

SNS shares were suspended in Amsterdam. They last traded
Jan. 31 at 84 cents, valuing the company at 242 million euros,
and have declined 57 percent in the past year. The shares were
sold for 17 euros in SNS Reaal’s 2006 initial public offering.

Finance Minister Jeroen Dijsselbloem said yesterday that
while the government will “expropriate” SNS equity and
subordinated debt, senior bondholders won’t be affected. Senior
bonds were quoted higher.

Trading in all securities is suspended on regulated
markets, Martijn Pols, a spokesman for financial markets
regulator AFM in Amsterdam, said yesterday. It’s possible that
over-the-counter transactions were still taking place, he said.
Trading in securities that weren’t expropriated will resume at a
later time.

“I scrutinized all alternative solutions involving market
parties,” said Dijsselbloem, 46, who was appointed chairman of
euro finance meetings last month. “I found myself compelled to
conclude no acceptable total solution was offered. I therefore
had to use the instrument of last resort, which is
nationalization.”

‘Unique’ Issue

The state will inject 2.2 billion euros of capital into SNS
Reaal, write down 800 million euros on its earlier aid package
and use 700 million euros to put the real estate portfolio at
arm’s length.

The company’s real estate investments had a book value of
8.55 billion euros at the end of June, the finance ministry
said. That compares with SNS Bank’s balance sheet of 82.3
billion euros. Dutch banks on average hold about 4.5 percent of
assets in commercial real estate.

“The issue is unique in the Dutch banking landscape,”
central bank director Jan Sijbrand told reporters in The Hague.
“There is no other bank that equals SNS Reaal in terms of
problems in quality and composition of the loans.”

A study commissioned by the Dutch government found SNS
Property Finance would face additional losses of as much as 3.2
billion euros in a negative scenario, the finance ministry said.
On Jan. 18, the Dutch central bank gave SNS a deadline of 6
p.m., Jan. 31 to either add 1.9 billion euros of core capital or
present a feasible solution.

Pulling Deposits

It didn’t meet the deadline, according to the Dutch
regulator. The analysis “indicated there was no capital left in
SNS Bank,” Sijbrand said. “We saw some outflows of savings and
we felt we shouldn’t wait until that became fatal.”

Customers withdrew about 1.4 billion of deposits since Jan.
16, according to a finance ministry document.

SNS Reaal is the smallest of four Dutch banks designated as
“systemically important,” or too big to fail, by the Dutch
central bank. It had 32.5 billion euros in savings at the end of
the third quarter, according to a Nov. 15 presentation. ING,
Rabobank Groep and ABN Amro are its three largest competitors.

Following the financial crisis that led to nationalization
of the Dutch parts of Fortis and ABN Amro and the bankruptcy of
DSB Bank NV, the Netherlands adopted legislation allowing it to
transfer banks’ assets, liabilities or stock.

Burden Sharing

“Shocked, stunned, those are a few words that come to
mind,” Jan Maarten Slagter, chairman of Dutch investor group
VEB, said in an interview in The Hague. “We support the
principle of burden sharing; that comes with taking investment
risks as a shareholder or subordinated bond holder. This however
is a state intervention that interferes with that idea.” It
should face an independent legal test, he said.

The Netherlands will impose a 1 billion-euro one-time levy
on Dutch banks in 2014 to share the costs of the SNS
nationalization. Each lender’s contribution will be
proportionate to its share of deposits guaranteed under a plan
as of Feb. 1.

ING said it expects a charge of 300 million euros to 350
million euros as a result. Rabobank also said it expects to pay
about a third of the 1 billion euros, while ABN Amro sees an
impact of 200 million euros to 250 million euros, according to
statements yesterday.

Dijsselbloem advocates introducing European Union-wide
rules allowing all bondholders to share in losses when a bank
fails. Senior bondholders in SNS were safeguarded from
expropriation.

Financing Costs

“So far, nowhere in the euro area have unsecured creditors
of systemically important banks been forced to contribute to a
lender’s rescue,” Dijsselbloem said in a letter to Parliament.
“If the Netherlands had made an exception to this nationally,
financing costs for other banks could have risen significantly,
according to the central bank.”

Almost half of Dutch lenders’ market funding, or more than
400 billion euros, consists of senior unsecured debt,
Dijsselbloem said.

Even so, the move will temporarily have a “negative effect
on funding costs for Dutch banks,” Albert Ploegh, an Amsterdam-
based analyst at ING, said in a note to investors. Ploegh has a
sell recommendation on SNS.

Leadership Change

SNS Chief Executive Officer Ronald Latenstein, Chief
Financial Officer Ference Lamp and supervisory board Chairman
Rob Zwartendijk stepped down, Utrecht, Netherlands-based SNS
said in a separate statement. The “reason for this decision is
that they don’t want to and can’t take responsibility for the
nationalization scenario,” SNS said.

SNS’s core Tier 1 capital ratio, a measure of financial
strength, fell to 7.67 percent at the end of the year, below the
European Banking Authority’s 9 percent minimum, as risk-weighted
assets and loan losses in the property-finance unit increased.

The EU will examine the state aid to SNS Reaal, Competition
Commissioner Joaquin Almunia said yesterday.

“It is concerning that about half of the Dutch insurance
and banking industry is now state-owned,” said Benoit Petrarque, an Amsterdam-based analyst at Kepler Capital Markets.
“That could be a reason for the Netherlands to accelerate some
exits.”